Isaac defends masala bond, justifies high interest rate

Kerala's Finance Minister Thomas Isaac on expected lines justified the masala bond of the Kerala Infrastructure Investment Fund Board (KIIFB) listing on the London Stock Exchange and said the funds would be used to develop infrastructure and returns would come through higher private investments in the State.

In reply to a discussion on the matter raised by the Opposition UDF, Isaac said it was Keynesian economics and not neo-liberalism as claimed by Opposition Leader Ramesh Chennithala. Kerala needed funds and that would come only by paying interest, Isaac said, refusing to be drawn into arguments about the CPM making compromises when it came to Marxian ideology.

KIIFB was the first sub-sovereign entity in the country to tap the offshore international bond market with the $312-million (₹ 2,150 crore) senior secured fixed-rate bond. The bonds were subscribed successfully and the listing should help accessing capital from international investors. This was for infrastructure development.

The bond has a five-year tenor and a 9.723 per cent coupon. Isaac admitted that the interest rate was high but that was the only option available.

He said the government would have to repay the amount after the fifth year. Interest and repayment was factored in as the Assembly itself had passed the proposition unanimously to use 50 per cent of the vehicle tax and also the fuel cess as grant to KIIFB. The repayment would be possible through the grant given to the infrastructure investment board, he asserted, leaving little room for the Opposition.

On Chennithala’s charges that there was the need for transparency in the matter, Isaac invited him to go through all the papers in this regard.

Earlier, Congress leader KS Sabarinathan kicked off the debate saying the masala bond would spell the doom of the LDF Government. It had the highest interest among masala bonds on LSE.

Also, CDPQ, a global investing agency in Canada that holds 20 per cent shares in SNC Lavalin, had subscribed to a good chunk of the shares, Sabarinath said.

Lavalin has been in the controversy over repair of hydel projects in the state. The agreement with the company in this regard was signed when Pinarayi Vijayan was the Power Minister in the EK Nayanar Cabinet. The agreement with Lavalin had caused huge loss to the state exchequer and the Supreme Court is soon to hear a CBI case to consider Pinarayi as an accused in the case.